How much inflation is costing you – and what you should do about it

Inflation has fallen to 4.6pc in October, and it’s the first time in over two years that it can be beaten by normal savings accounts. 

However, time could be running out to secure one of these high rates, as rates appear to have peaked. Where one-year rates once topped 6pc, the top rate is now 5.91pc.

What’s more, there are still hundreds of accounts that don’t beat inflation – if your cash is sat in one of them your money will lose value over time. As our calculator below will show you, finding the best-paying savings account is essential. 

Calculate your losses

While some savers eagerly chop and change their accounts to find the best rates, others have had the same one for years paying pittance on their hard-earned cash.

If this is you, Telegraph Money has devised a calculator to spur your into action – it tells you, in pounds and pence, just how inflation is damaging your wealth.

You can put in the value of the deposit and the savings rate, and the calculator will tell you how much interest you can expect to get, the cost of inflation and what the real-terms value of your savings will be after a year.

It will also show you what the cumulative impact of these losses will be for each of the next five years in an extreme case where inflation stays at the same level it is now.

You can use the calculator to see how much of a difference it would make to switch savings accounts for a better rate.

Someone with £20,000 in the average easy-access account paying 3.17pc will suffer a “real terms” loss of £273 a year because of inflation. They would earn £634 in interest, but their pot would effectively be worth just £19,727 after a year when adjusted for inflation.

Switching to the top easy-access savings rate, which is from Metro Bank and pays 5.22pc, they’d make an inflationary increase of £119, based on actual interest of £1,044.

Are Isas a smart move?

Isas are another option but the savings are capped to £20,000. You can use our savings tax calculator to work out whether you could save money by switching to an Isa, which is tax-free. 

Basic-rate taxpayers can earn £1,000 on their savings before having to pay tax, while higher-rate taxpayers can earn just £500.

Someone with £20,000 in the top easy access Isa paying 5.15pc from Gatehouse Bank would make £1,030 in interest over the year, but their total gain would be £105 when adjusted for inflation.

But if they switched to the top cash Isa rate on the market – 5.85pc from Virgin Money for a one-year fix – they would be up £239. Their pot would have a real terms value of £20,239 in a year, but they’d still earn £1,170 in interest.

To get better returns, you can lock your money into a fixed-rate savings account for at least one year – although your interest will be taxable. 

This article is kept updated with the latest rates.